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U.S. Earnings Reports Help Stock Indices Overcome Earlier Weakness

James Hyerczyk from ForexHound.com at 10/22/09


Early session weakness triggered by follow-through selling from yesterday and today’s worse than expected initial claims report failed to keep equity prices down.  Traders bought up shares early in the trading session as better than expected earnings reports from Traveler’s and McDonald’s increased trader demand for risky assets.  Today traders continued their pattern of buying on weakness as this market once again showed no sign of a let up.


Treasury futures see-sawed most of the day, before finishing lower.  The December Treasury Bonds and Treasury Notes felt pressure from the opening as traders began to price in next week’s auction.  The weaker than expected initial claims report helped the markets erase some of their gains but the T-Bonds and T-Notes never really got on track.

Traders are expecting market participants to ask for higher yields next week in order to be competitive with recent gains in the equity markets. 


The U.S. Dollar finished mixed against a basket of currencies today.  The strong rally in the equity markets helped to erase losses in both the December Euro and December British Pound.  Traders were focusing on a stronger Dollar this morning as news out of China indicated that the government may begin to cutback on its stimulus spending.  This news sent the Dollar higher against most currency markets.  The news out of China should continue to weigh on traders’ minds; however, earnings news is expected to triumph over economic news until earnings season is over. 


December Gold felt downside pressure today because of the weaker Dollar but erased some of its earlier losses when the Dollar weakened late in the trading session.  All eyes will be on the Dollar Index tomorrow to see if it can continue to build support over its 14-month low made earlier in the week.  As this is taking place, traders will be watching to see if gold can overtake $1072 if the Dollar weakens.  The inability to break gold while the Dollar is hitting multi-month lows is raising concerns that gold is diverging from the Dollar.  This makes December vulnerable to a break back to $1028.80.


December Crude Oil finished lower but off its lows.  Early pressure was on crude oil as the Dollar’s strength limited demand for higher risk assets.  Weaker equity markets also encouraged early session selling pressure. Traders have to keep in mind that crude oil is not following the traditional fundamentals at this time.  Prices are being driven higher by speculation, higher equity prices and the lower Dollar.  This makes it vulnerable to a sharp break if stocks fall and the Dollar rises.




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